there were thirteen why from moscow our top stories now so bastardi cops on the government's project policies are blamed for losing control of the streets after four nights of riots in the u.k. hundreds of people have been arrested and five have been confirmed killed in the violence. from china could top the list of the world's strongest economies pushing the new asphalt it's century old state within five years that says the euro zone economy circled the drain with news that france is next in line for

a downgrade. and activists in russia are taking matters into their own towns when it comes to taxing pedophiles who escape justice the current sex crimes laws are slammed for being inadequate and keeping the press from the playground. for debate so cross talk is next on her she. will. remain the latest in some instances the answer from the world. we've gone to the future of coverage. if. you think you're. welcome across doc i'm peter little on the brink of bankruptcy time is running out for the american budget deficit failure to raise the debt ceiling could have catastrophic consequences not only for

the u.s. but for the entire world how can piling on more debt begin to solve america's fiscal woes. discuss america's out of control debt situation i'm joined by martin henican hong kong he's an associate director of the group in cambridge we have jeffrey frankel he's a professor of capital formation and growth at the harvard kennedy school and in new york we cross to joe weisenthal he is a deputy editor at the business insider all right gentlemen this is cross talk that means you can jump in anytime you want but first let's have a quick look at america's get mess. going broke going for broke wanting stuff that asked for the l.s.o. fourteen point three trillion dollar debt ceiling is lifted by need me on the line the course of the u.s. is on president obama so how do original money lives that it more than fourteen

point two trillion dollars and rising by four wheeling dollars that a massive iou that's generation forty three cents for every dollar we spend this year. we borrowed against the future of our children the eleventh hour compromise boarded a u.s. government shutdown with agreement on the largest single spending cuts in u.s. history but thirty eight billion dollars is small change against the size of the debt and last month though with largest bond trader said it was also a few us treasuries smile and trillion dollar deficits as far as in those. some counter the world's largest economy has to go for growth and that is even possible can it handle that but criticism of the learns on strategy and spiraling prices for anything priced in the greenback on the line every confidence in the u.s. dollar and the global economy that. that issue. artsy.

and i go to you first i'd like to read something to you the united states of america if we didn't have the dollar is the defacto reserve currency of the world we'd be greece i mean we're broke bankrupt really bankrupt and now we are treasury secretary james baker and we reflect upon those words. big growth for us was saying that the u.s. is actually out creating the greeks because if you add all the unfunded liabilities to the national debt figure i mean the national debt figure. isn't really what this is really about but really the unfunded liabilities are the so-called fiscal when that's two hundred and two trillion us dollars saw in many ways that's worse than greece the budget deficit is very small as they say mess crazy of ten point eight percent budget deficits and the eurozone was formed not that the eurozone is any

better i mean they're just blowing up right now to all you have to be seeing again pressure on greek and then picks going and guns and even germany and france increasingly looking shaky on the government as well but just as a reference on the eurozone will spawn there was a limit of three percent or budget deficit as a percentage of g.d.p. that is normally considered as a maximum sustainable so the u.s. is now at ten point eight percent clearly as we have been warning they are beyond the point of no return and we don't really see that they could solve the problem in any other way then then it's an hour. estimated at most analysts agree greece will have to do it basically some form of the default or debt restructuring or of very very high inflation in respect of currency to get really out of this step so we say stay out of the u.s. dollar stay out of any form of medium to long term u.s. treasuries but by the way also eurozone doesn't look better again so the rest we are very optimistic on it ok jeffrey in cambridge of anger view is that too bleak

of a picture there i mean cut the past the point of no return that's remarkable. well absolutely not i'm not sure i heard that right there is there's no chance we're going to have a restructuring of the debt i mean we have a very serious long term debt problem we've had it for quite a while it's it's long term in two ways one that the problem is that deficits the moment the problem is retirements and the rapidly increase in pensions and health spending medicare and social security that are going to come over the next few decades that's a problem it's also long term in the sense that we we've been facing this problem for thirty years many people like myself have been worried about this for thirty years there's nothing magic about about this year the only thing that's magic about this here is it's become a political issue this year the american political system kind of is arlee swings back and forth between not being concerned at all about the problem and making it much worse with huge tax cuts like we did in the early eighty's when james baker

was working for ronald reagan or as we did in the bush administration versus times when all of a sudden we're concerned about it i'm happy that we're i mean if we're concerned about it fine let's take advantage of that political crisis to solve the problem but if you look at. it on the willingness of foreigners to hold u.s. treasury securities there isn't the slightest sign that they that they're getting tired of it so they use the phrase. a debt crisis is to my mind absurd five years ago i don't feel it is bad it really does they have a lot of debt yet because nobody has buying it. ok it's not just following us look at sawyer a lot of other china is buying as we know i mean it isn't just the u.s. federal reserve lots of other central banks like china are buying now you might say at some point they're going to start and i'm worried about that too but at the moment they're not slowing down their purchases foreign central banks ok joe where you where do you gentlemen and where do you jump in all this. on the view the

crisis is totally overhyped i mean this idea is like will if we didn't have the dollar we would be greece but we do of the dollar and. we have a fundamentally different monetary system. doesn't control its own currency they're subtly borrowing and someone else currency they have to build up a surplus of them pay it back we're fundamentally different system than that and to compare as through greece or our lender or any other trying to prepare isn't just wrong and i think look this is something that politicians freak out about and yeah you know as the other guy said all the sudden it's become a political issue but if you actually i look at the market i look at what how the market is reacting to america is that everything is known and all the math is known and everyone's figure out about how we're bankrupt but the market doesn't seem to care and is not concerned so i really i tend to think the issue is mainly a lot of ok well if i go back to martin i mean the market the the market didn't isn't particularly concerned by it but it seems to me when everything gets goes

sour the markets are the ones that are saved the bankers are the ones that are saving me if there is a crisis they're going to come out on top like they did in the last crisis here i mean our politicians are. underestimating this problem because it's just so gigantic i mean i have a calculator on my computer and i can get fourteen trillion dollars on a number of digits by it's a big number it's a really big number and believing that it's going to be cut down when the budgets continue i mean the defense budget continues to expand i mean if we reach the point where we are there's going to be a clash of this system you can't keep borrowing forever everybody knows that. but obviously most of them put it in stone and really seem to understand the situation . or maybe they do and therefore i thought i read it as outrage to raise their voices or if they do they are marginalized in some way oh and i'll go now well recently you see those raising the issue of having a bit more attention finally because this has now become this political issue but

obviously that was still ongoing before but i would just come back to jeffrey skilling is that when the market the market. isn't seeing the danger because that's a very important one but if you're talking about the markets too seems to look at that one the stock market but one market and a commodity market so actually three in that way but mainly if you're looking at stocks market because i would put it into the basket of real assets because stocks represent companies was really the most services will be so they can increase the prices and i'm just inflation and commodities are also represent tangible assets or if these markets are in rory's or gold and silver they're going up a lot but what do you see avoid i mean i think the more glorious the market gets about this over and debt crisis and the resulting inflation hyperinflation because that's the only way they could possibly get rid of the debt the more worried the market gets the higher you see commodity prices rise ward and serve all rise as a hedge against this possible bankruptcy or very high inflation as

a result of bankruptcy so it's an indirect bankruptcy and also the stock market could actually rise on inflation expectations so really what you want to watch there is the bond market and to some extent we haven't really seen a celebrate yet but that's why for investors now as bill gross this story it's absolutely now the time to get out on any long term. and even. anything one would even shoddy because you're still in in the dollar and the dollar may just suffer through the devaluation so no i don't really see that the market isn't getting adjusted to one another but it's going to come gradual you want to jump in there jeff i saw you want to do the bill gross. i mean joe first in the world you're selling bonds is what is drastically misunderstood everyone saying oh he's selling bonds because he thinks the government is going bankrupt or what not that's actually not what's going on and so environed because he insists it's the end of q e two essentially. the fed goes back to normal zero interest rates of negative

interest rates that's essentially a rate hike and historically that would be a good reason to sell bonds if you're. look at what his partner muhammad illyrian is saying elsewhere is like oh the ten year yield got a bit higher we cry actually buy bonds again so this is another thing people look at his move and start to freak out and say oh this means that if the government is going bankrupt isn't slow do you really need a lease and so it's an emergency i'll even but i don't think this is rising so how do you possibly think you even say right interest rates are going to be on the rise how do you possibly saying business numbers are high interest rates are going to be unbearable by the united states government so that's one issue but i want to jump in here let me go to. the gym just going yeah i think. so i seem to be between the other two panelists in a sense and number one we definitely have a long term fiscal situation which we need to address and at some point if we don't

there could be a crisis certainly there's the risk that eventually could be ten years from now there could be a sharp increase in inflation and interest rates and fall in the bond market we want to avoid that we can do it it's not it's not impossible if we have a balanced kind of program to address it and for my money president obama recently is recent speech addressing it just broadly speaking was a kind of balance we need to do a little bit of slowing the rate of growth of entitlements we need to cut the mystic spending we need to cut military spending we need to do something on the tax side we need to do a little bit and maybe we'll succeed in doing that we certainly can if i sat down with the economists you know a group of economists are both parties we could we could start it pretty quickly but to be doing it for a very i don't know what that means need to go to a short break here and after that show a break we'll continue our discussion on steve martin. he. still.

insists. this is a table from the u.s. embassy in colombo to talk about here it apparent june seventh incident of extrajudicial executions the military reported to the press that on that they killed nine guerrillas and from that the best edition right instructs young could have you know and they're going to be strongly suggest however that the nine were executed by the army and then dressed in military fatigues. please. explain how you know this kind of phenomenon where bodies are dressed up as guerrillas and presented as killed in action and this and this the idea that you need to produce parties actually encouraged paramilitary collaboration is the cia document central intelligence agency they knew about these activities they knew they were happening they knew about links to paramilitary groups and yet usaid

continued to flow. more news today violence has once again flared up. and these are the images the world has been seeing from the streets of canada. giant corporations rule today. and you can see. the. welcome here are some time carol about three minute we're discussing if the u.s. will default. live. it can still

live. ok jeff i want to go back to you because you said something really interesting if you could could get members of both parties together you can solve this here is not really a revenue problem and not a spending problem how to generate revenue. it's but i said if we get economists together of these. yeah. you know i mean the good the good even though it's there's at the moment somewhat surprisingly i would say the markets are completely relaxed there's no sign that they're nervous about holding us that and as long as they go on doing that we don't have a crisis but we foolish to rely on that forever that's that's so that's the. that's one point it's kind of nonsense a call that at this moment in history two thousand and eleven is when american politicians are suddenly doing this as a crisis they would and much much easier much much better to have just half of the

support for fiscal stabilization ten years ago or five years ago but we are where we are and the good news is maybe we can take advantage of this all this political ferment to address the problem the bad news is that one of the two political parties is speaking nonsense from an arithmetic viewpoint the republicans think that they can solve the budget deficit by tax cuts and i mean it's just a complete nonsense and we've shown this over and over again reagan thought the same thing and the budget deficit got much worse he could triple the national debt george w. bush saw that same thing and the budget got much worse he doubled added created more debt than all two hundred thirty previous presidents and his father and reagan combined so now the republicans are saying exactly the same thing we're going to we're worried about the budget deficit so we're going to cut taxes it makes no sense ok joe what about that because you know there's a uniquely the united states there's a lot of. wealth in the sense of financial speculation in things like theirs and

the concentration of wealth here i mean i know it's politically incorrect to talk about taxing people in a bad time but there are some people that have a lot more than others ok and if so if the country is so concerned about debt then you know then generate a little bit more revenue over a ten year period or something like that i mean the rich are going to stay rich. yes i totally agree that this idea that we face. catastrophe and we're going to become the next greece and have all this and yet this is so severe and it could threaten our prosperity for generations but oh we can't raise taxes slightly on anyone is an absurd level of sort of split thinking it seems completely contradictory i think what this basically exposes is that most of the debate is actually just a pretense for getting if it's the whole thing is a print says we're getting something else so it's

a pretense that republicans want to use the debate as a opportunity to weaken some of the social safety nets and cut taxes the democrats will also you know well i agree with the republicans that the debt is an issue and they want to use it as an opportunity to raise taxes and cut defense spending so this big problem that everyone agrees that it's a huge problem and it is really just an opportunity to push whatever visionary he had on everything else you know joe it sounds like to me that everybody wants to go to heaven but nobody wants to die martin if i can go to you i mean if the if this really is a political football and i would agree with our that you guessed it is a political football here because somebody wants something for something ok but isn't this really like the the the people on the can make arguing over the seating order on the top deck because it's still worse and worse. absolutely there even this debate here i mean we're destroying jeffrey i think

they're probably getting carried away in these idle ideological debates and arguing with totally ignoring what actually the numbers tell us and because we are talking about the rating because there be a rating downgrade on the night it stays on the way to being potentially bankruptcy a lot of us want to say not all the rating agencies are stuck in this type of thinking and giving the u.s. a aaa but actually the chinese rating agency. has downgraded in november last year the united states plus it is a negative outlook and i just want to give you a call because he also does gave me one from the chairman of the dugong global rating agency and he is saying the western rating agencies are politicized and highly ideological they do not take it here to objective standards the u.s. is in sort of an in face is going to see as a pure detonation by the rating agencies still give a high rating of ranking so again you know this debate about being about a few a billion dollars in there is totally irrelevant i think if anything i mean one one

hole that i do see for the united states even in the in the near future now it may be our very kiters agricultural sector in trade with china the projections are now their trade with china is going to grow it's going to double over the next five years and you look at what this has done to brazil saw their lightnings but certainly not their budget deficit again i don't see a way out of this short of structuring everything as is just you know. from people who don't understand basic economics jeff if i can go to you really see the structuring is now granted there are so many ways we could start restructuring the restructuring is nonsense we want to avoid a situation where ten or twenty or thirty years from now with we have a huge year or the revenue is growing and we're borrowing from abroad to finance medicare and we want to avoid a situation where we might be forced into a gopher. twenty years from now the idea that there is any chance of a restructuring you know within the next few years that i'm sorry is just nonsense

i don't understand why and i thought while this is saying that yes yes that's a super serious problem yes we should address that and there's all kinds of ways we could address that they're politically very costly very dangerous and politicians don't want to say them but you know it's if we had. a value added tax or greenhouse gas emission permits together with steps that many of us are proposed to slow the rate of growth of spending in title minutes have to trim defense spending in addition of domestic spending to a little bit all around. it can be done if problem is a political one it's not an economic problem joe if i can go to you if you think there's a mindset go ahead and i was going to say this isn't there just a mindset in the united states is that the dollars just too big to fail is just too important in the world and we'll just put it off in a few more years like a lot of noise about lifting the ceiling and let it somebody else worry about it because as jeff pointed out you know ten years from now twenty years from now thirty years from now nobody in office today is going to be in office then.

actually i kind of think the opposite there's a there is that definitely this idea that you know we are too big to fail but what i think is actually more interesting is this kind of opposite strain of thought that's having this kind of liquidation is like let's not raise the debt ceiling now let's just bite the bullet in the fall let's restructure our debt let's just pull the rug out from under the u.s. banking system and under the dollar right now that's a kind of a surprising new strain that you hear more and more of what if there is no reason to restructure actually you know people say oh the debt situation is getting worse and worse even by some metrics it's not interest payments as a percentage of tax revenue or interest payments as a percentage of g.d.p. have actually gone down because interest rates have gone down over the last twenty or so years so it is clear we have this big that we have there's a lot of people want to take something incredibly painful want to do something drastic like not raise the debt ceiling when there actually isn't any kind of

external force that suggests we need to do something like that jeff you want to jump in there. well yeah i want to i want to make clear that the only reason why words like you know default or even are even mentioned by anybody is not because we're in a greece situation but rather because the two parties of congress are playing a game of chicken a deliberate game of chicken which i mean it's almost like holding holding the capitol building hostage it's not directly related to the issues involved we're not running out of money i mean their countries raise their debt all the time and as long as the debt is increasing too rapidly for example if it's coming down as a share of g.d.p. or you know it's not that high is that that's not that's not an issue we happen to have this all kinds of corks in our political system and one of them is that if one of the two parties chooses to pull the pin on a hand grenade and say if you don't give me my way on what i want on these other issues like you know prohibiting abortion and stopping abortions this or colombia's

irrelevant things i'm going to blow us all up i don't hear anyone anyone a single person in the united states saying we ought to restructure our debt rather it's it's going to blow us all up if you don't give me my way you know marni it seems to me that if the u.s. isn't financially bankrupt it's intellectually bankrupt according to and i'm kind of extrapolating from what jeff had to say but again you know i mean the thing is is that people are using this is a political opportunity there may be a crisis that may not be a crisis and i'm going to get what i want to portion was mentioned i read that earlier before i'm going to do this program here but there's a lot of other things that people just want to you know a lot of horse trading and again is we're going the titanic is going to its final destination people now waking up to what really needs to be done just mentioned some very good things. yeah i mean definitely i think the baiting you know maybe you even have the debate on raising the debt ceiling or not raising the debt ceiling but why this is being debated saying the authority who can really decide on whether or not they're going to raise the debt ceiling of the u.s.

is that one market and of cause and age of london vesta so i think that's really interesting to watch. we have been watching the eurozone one market where years in the beginning also rising very slowly and then suddenly spiking and if it hadn't been for as a bailout of now it's really yours on countries they would already be history and this can go very very fast or for bond and best doesn't go figure this is something to watch a very very careful you know u.s. years going up and you know just last week actually out of the u.k. you know an advisor to the central bank saying that's it within one year a u.k. interest rate might quadruple so if this is something that's going to happen around the world as a result of the rising inflation we should see reflected in commodity prices for you know silver has been surging like there's no tomorrow and this is the fear authorizing force waves rising potential bankruptcies and also as inflation any of that continues again as inflation rises interest rates would have to rise because

one invests in mind and this is something to watch very carefully whether or not you believe the u.s. will go bankrupt or not do watch the rates they will probably tell you earlier so what's going to happen all right jeffrey i'm going to give you the last word we're going to be a really be having this conversation a year from now. yeah yeah we well i mean the feel we should be afraid that some private investors are tired of their current eagerness to hold u.s. bonds and there will be a decline in u.s. bond market an increase in interest rates that is not a good fall to restructure and i do not understand why that word those words are produced at all on this show all right gentlemen we've run out of time here many thanks to my guests today in hong kong cambridge and in new york and thanks to our viewers for watching us here on r.g.p. see you next time and remember a cross-country. study .

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